USC billions for pensions abyss

USC billions for pensions abyss

Deficit danger now rated as ‘significant risk’ to nation

Minister for Social Protection Regina Doherty. Photo: Fennells

The Government’s long- promised plan to merge USC and PRSI could be used to offset the growing risk posed to the country’s financial stability by the pension time-bomb, the Sunday Independent can reveal.

Senior Government sources believe a significant amount of the €4bn raised annually from USC could be combined with PRSI to fill the black hole in the country’s pension fund.

Minister for Social Protection Regina Doherty is understood to be eager to dramatically increase the amount of funding her department receives once the merger is completed.

However, Finance Minister Paschal Donohoe is believed to be concerned about the impact such a move would have on funding for public services.

The proposal comes as it can be revealed that an unpublished Government risk report has given its starkest warning to date on the state of the country’s pension system.

The 2018 National Risk Assessment states that the pension system faces a number of “very serious demographic, adequacy and sustainability challenges” due to the country’s ageing population.

The report says the funding of the pension system will be left to a “diminishing” number of taxpayers as the amount of retirees relying on State pensions skyrockets in the coming years

It says the ratio of workers to retirees will significantly increase unless there is an “improbably large immigration of people of working age”.

Population projections indicate the ratio of people of working age to every person of State pension age will reduce from its current rate of 4.9:1 to 2.3:1 over the next 40 years.

“Notwithstanding the gradual increase in State pension age from 65 in 2010 to 68 in 2028, it is estimated that the number of persons at State pension age and older will more than double from 586,000 in 2015 to 1,402,000 by 2055,” it states.

The report forecasts that the Social Insurance Fund, which all employees and employers contribute to through PRSI, will be faced with a deficit of up to €335bn over the next 50 years if Government action is not taken.

Ms Doherty is anxious to fill the hole in the Social Insurance Fund and extend PRSI benefits by raiding the USC fund. The USC was introduced as an emergency measure during austerity years to fund the deficit in the public finances.

Before the last general election, Fine Gael promised to abolish the tax but has since U-turned on the proposal and has now committed to merging USC and PRSI.

Earlier this year, Mr Donohoe established a high-level working group of officials from the Departments of Finance, Taoiseach, Public Expenditure, Social Protection and the Revenue Commissioners to examine the merger.

It is now expected the USC and PRSI merger will be structured to ensure the Social Insurance Fund does not go into a deficit. This increased fund would then be used to pay welfare benefits such as the State pension, paternity and jobseeker payments.

However, the Government does not believe restructuring the tax system will be enough to avoid a black hole in the pension system.

Increasing the pension age to 67 in 2021 – and 68 in 2028 – and introducing an auto-enrolment for private sector pensions are also essential.